Breaking Up The Big Tech Companies. Is Elizabeth Warren Crazy?

Elizabeth Warren is anathema to conservatives reactionaries. She is constantly promoting ideas that will protect ordinary people from the rapacious, predatory practices that free marketeers embrace. One of her proposals would have prevented the implosion of the global economy that wiped out trillions of dollars in wealth in 2008. The free market types beat back that challenge and the rest is history.

Credit: YouTube

The core of the “Let the market decide!” types is a “Heads we win, tails you lose” philosophy that privatizes profits and socializes costs. The theory is that the market, in the absence of government regulation, will self regulate to promote the most efficient use of capital. But it’s a theory built on a lie. Why? Because it assumes all the costs of doing business are included in the equation when it fact, many of those costs are passed along to society in general, distorting the system in ways that vitiate its promise.

These are what economists call “untaxed externalities.” The best explanation of that concept I have ever encountered was given not by an economist but by an engineer, a fellow named Elon Musk, who gave a highly lucid talk on the subject at the Sorbonne in Paris in 2015. The lie is that free market advocates know their logic is flawed but continue to bang the drum for their ideology nevertheless. Depending on your point of view, such conduct is either amoral or immoral. You decide which.

Warren has put a proposal on the table that would treat the tech giants of the world the same way the railroad and oil company monopolies were treated by a prominent Republican president by the name of Theodore Roosevelt at the beginning of the 20th century. Using the authority of the Sherman Antitrust Act of 1890, Roosevelt broke up JP Morgan’s railroad monopoly and John D. Rockefeller’s Standard Oil monopoly. Similar actions by later presidents dismantled the Bell telephone empire and Microsoft’s domination of the early digital universe.

The theory is simple. The public is best served by competition. Private interest is best served by monopolies. When one company dominates a market, all the high minded rhetoric about efficiency of capital and the other shibboleths preached for decades by Milton Friedman and the Chicago School of Economics go right out the window. There is no more efficient use of capital. All the benefits of the marketplace go directly into one or two favored beneficiaries with little left over to benefit society.

Here is the meat of Warren’s proposal:

Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”

These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.

For smaller companies (those with annual global revenue of between $90 million and $25 billion), their platform utilities would be required to meet the same standard of fair, reasonable, and nondiscriminatory dealing with users, but would not be required to structurally separate from any participant on the platform.

To enforce these new requirements, federal regulators, State Attorneys General, or injured private parties would have the right to sue a platform utility to enjoin any conduct that violates these requirements, to disgorge any ill-gotten gains, and to be paid for losses and damages. A company found to violate these requirements would also have to pay a fine of 5 percent of annual revenue.

Warren’s plan would require Amazon Basics — a line of products made by Amazon — to be separated from Amazon Marketplace. Google’s ad exchange and Google Search would also have to be split apart, with Google’s search business being spun off from the company, reports ArsTechnica.

Her plan also seeks to “unwind anti-competitive mergers” such as Amazon’s purchases of Whole Foods and Zappos, Facebook’s purchase of WhatsApp and Instagram, and Google’s purchases of Waze, Nest, and DoubleClick. “Unwinding these mergers will promote healthy competition in the market — which will put pressure on big tech companies to be more responsive to user concerns, including about privacy,” Warren writes.

How Bad Is It?

Writing in The Guardian, Robert Reich says Warren’s ideas have support on both sides of the aisle in Congress. “At a Senate hearing I attended last week, the arch-conservative Missouri Republican Josh Hawley asked me, rhetorically: ‘Is there really any wonder that there is increased pressure for antitrust enforcement activity, for privacy activity when these companies behave in the way that they do? Every day brings some creepy new revelation about these companies’ behaviors. Of course the public is going to want there to be action to defend their rights. It’s only natural.’”

Reich spells it out in detail. Almost 90% of all internet searches go through Google. “Facebook and Google together account for 58% of all digital ads, which is where most ad money goes these days. They’re also the first stops for many Americans seeking news (93% receive news online), and Amazon is now the first stop for a third of all American consumers seeking to buy anything.

“With such size comes the power to stifle innovation. Amazon won’t let any business that sells through it sell any item at a lower price anywhere else. It’s even using its control over book sales to give books it publishes priority over rival publishers. Google uses the world’s most widely used search engine to promote its own services and content over those of competitors. Facebook’s purchases of WhatsApp and Instagram killed off two potential competitors.”

“But, but, but…..these companies are creating jobs!” the free market types splutter. Actually, no they don’t. Quite the opposite, in fact. “Contrary to the conventional view of America as a hotbed of entrepreneurship, according to the Census Bureau, the rate at which new job-creating businesses have formed in the US has halved since 2004,” Reich points out. If it’s jobs people want, enabling monopolists is exactly the wrong way to go about it.

Blowback

Opponents have been quick to blast Warren’s plan. Rob Atkinson, president of Information Technology and Innovation Foundation, an industry-sponsored group, tells the New York Times, “The Warren campaign’s call to break up big tech companies reflects a ‘big is bad, small is beautiful’ ideology run amok. The proposal ignores the fact that many of the services big tech companies now provide free used to cost consumers money.”

Matt McIlwain, a partner at the Seattle venture capital firm Madrona Venture Group, which was an early Amazon investor, said in an email to the Times, “Senator Warren and others with a similar mind-set are misguided on the need to break up larger tech companies. Companies in the innovation economy have a strong track record of creating quality products and services that are often free or at dramatically lower costs than previous services.”

Assuming what McIllwain says is true, aren’t there also costs to all that convenience? Should Facebook and Google and YouTube be free to spread misinformation promoted by hostile foreign governments to influence US elections in the name of convenience? Should small companies be hammered into submission by Amazon to serve the god of convenience?

Include Apple As Well

The Verge contributor Nilay Patel caught up with Elizabeth Warren at SXSW last week. She said Apple would also be affected by her proposal. “Apple, you’ve got to break it apart from their App Store. It’s got to be one or the other. Either they run the platform or they play in the store. They don’t get to do both at the same time. So it’s the same notion,” she said.

How the heck do you separate out services and products that are so intertwined?

“Well, are they in competition with others who are developing the products? That’s the problem all the way through this, and it’s it’s what you have to keep looking for. If you run a platform where others come to sell, then you don’t get to sell your own items on the platform because you have two comparative advantages.

“One, you’ve sucked up information about every buyer and every seller before you’ve made a decision about what you’re going to to sell. And second, you have the capacity — because you run the platform — to prefer your product over anyone else’s product. It gives an enormous comparative advantage to the platform.”

Warren says her two tier system will not require an army of government regulators to police. If a company does more than $25 billion in global business annually, it will be required to separate the platform from the marketplace using that platform. No regulators needed for what she calls “bright line” cases. In fact, her argument in favor of bringing back the Glass-Steagall act relies on the same principle.

“[M]y argument is basically, don’t tell me that the Fed and the Office of the Comptroller of the Currency can crawl through Citibank and JPMorgan Chase and figure out whether or not they’re taking on too much risk and whether they’ve integrated and cross-subsidized businesses. Just break off the boring banking part — the checking accounts, the savings accounts, what you and I would call commercial banking — from investment banking, where you go take a high flyer on this stock or that new business. When you break those two apart, you actually need fewer regulators and less intrusion on the business.”

Amoral Behavior

The one factor that free market advocates continue to ignore is the value of commercial activities to society. In fact, if you listen to their fervent protestations about how all government is bad and how government should be starved of cash until it is small enough to drown in the bathtub, you quickly learn that there are no moral guideposts in free market theory. “He who has the gold makes the rules,” is one part of it. (The use of the male pronoun is not accidental, by the way.)

The other part of it is the idea that “I got mine, brother. Too bad about you.” This pernicious belief allows so-called conservatives to pretend that if someone is poor, it is their own fault. If you get sick, you shouldn’t come sucking around to the government to provide you with access to medical care. You should have taken better care of yourself. It’s a dog eat dog world and you better get used to it. “Quit yer bitching,” is how they see things.

Baseball Without Umpires

The incessant refrain from conservatives about government and regulations — a centerpiece of the Trump agenda — is a hoax. What regulations are they against? Would unfettered capitalism do away with the FAA? Would efficient use of capital create rules that keep airplanes from slamming into each other in flight? Would the free market efficiently decide how many hours a jet engine can operate before it needs an overhaul? Would anyone fly if there were no regulators involved?

How about water? If you think private enterprise should be trusted to deliver safe drinking water, please Google “Flint, Michigan” and let us know if you would trust the free market to protect your children from contaminated water. The natural result of pure free market theory would be like playing baseball without umpires.

Monopolies aren’t good for anyone except monopolists

Robert Reich claims one other negative aspect of unfettered monopolies is their ability to pressure governments into doing their bidding.

“Amazon – the richest corporation in America – paid nothing in federal taxes last year. Meanwhile, it is holding an auction to extort billions from states and cities eager to host its second headquarters. It also forced Seattle, its home city, to back down on a plan to tax big corporations like itself to pay for homeless shelters for a growing population that cannot afford sky-high rents caused in part by Amazon.”

“Facebook withheld evidence of Russian activity on its platform far longer than had been disclosed. When the news came to light, it employed an opposition research firm to discredit critics. Zuckerberg, who holds the world speed record for falling from one of the most admired figures to one of the most reviled, just unveiled a plan to “encrypt” personal information from all his platforms. The plan is likely to give Facebook even more comprehensive data about everyone. If you believe it will better guard privacy, you don’t remember Zuckerberg’s last seven promises to do that.

“The New America Foundation, an influential thinktank Google helped fund, fired researchers who were urging antitrust officials to take on the company. And Google has been quietly financing hundreds of professors to write research papers justifying Google’s market dominance.”

Hmm… does that remind you of anything? Oh, yeah. Fossil fuel companies paying people to attack climate science. Still think free enterprise has a moral compass? Think again.

Warren Offers Solutions, Not Ideology

Elizabeth Warren is routinely lambasted by conservatives. Yet many of her ideas are about helping ordinary people survive against the onslaught of economic predators. Anyone concerned about the growing wealth inequality in America should be standing up and cheering her plan. If nothing else, she is willing to put her ideas out there where they can be tested in the crucible of public debate instead of hiding behind platitudes and slogans.

Is her plan bold? Yes it is. Oddly enough, boldness is beloved if it comes from male tech entrepreneurs. Is there is a gender bias component to the negative reaction to her plan? Almost certainly. Many of her detractors suggest she is unhinged but in reality they are the ones who are divorced from reality. Warren’s proposal would bring sanity to an economic system that strongly favors a small, select segment of society over the vast majority of people. For that reason alone it deserves serious consideration.

One Vote Will Decide

Oddly enough, the first successful antitrust case brought by Teddy Roosevelt’s administration was decided by a 5-4 vote in the US Supreme Court. There’s a strong possibility history will repeat itself if Warren’s proposal ever becomes law. Rabid right wing conservatives have successfully packed the court with hard core ideologues who were born and raised to loathe government and all regulations. There is no reason to expect the US Supreme Court as currently composed to favor legislation that reins in the power of mighty corporations.

About the Author

Steve Hanley Steve writes about the interface between technology and sustainability from his home in Rhode Island and anywhere else the Singularity may lead him. His motto is, "Life is not measured by how many breaths we take but by the number of moments that take our breath away!" You can follow him on Google + and on Twitter.

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